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Adjusting reclassified Dividends

Mutual Funds, REITS, and other non-standard stocks may reclassify dividends at the end of the year. What was previously listed only as dividends may suddenly show up on the 1099 as a mix of dividends, capital gains, Return of Capital, etc.

In myICLUB.com, this can be handled by editing existing transactions. In Desktop Club Accounting 3, you will need to edit the original transaction, as well as enter a new one.

While most clubs will see this happen for cash dividends, it's also possible for a club to see this happen with a reinvested dividend.

The first set of steps below are for regular cash dividends.

If you need to handle reinvested dividends being reclassified, please click here, to jump to that section of the page.


To be classified as a dividend a company must have sufficient current and retained earnings to pay the dividend. If not, any portion not covered by current and retained earnings is a return of capital to those receiving the distribution. Brokers often show these return of capital distributions as ‘non-dividend distributions’ on their 1099. The tax treatment of dividends and return of capital are different. If your club holds a REIT, you may also see a listing for Section 1250 Gain on the 1099; this is entered as capital gain in the accounting system.

Here is the suggested way to handle this situation, using myICLUB.com:

Edit the original dividend transaction. If you aren't sure how to edit a transaction, please see our FAQ on Editing/Removing transactions: https://www.iclub.com/faq/Home/Article?id=476

In the online program, myiclub.com, there is now the ability to split the cash distribution into multiple types. There is a link with a title that includes ADD ANOTHER DISTRIBUTION TYPE. These non-dividend distributions are entered as Return of Capital distributions in the program. As noted previously, any Section 1250 Gain would be entered as a capital gain.

Enter the amounts reported on the 1099 for dividend in the section for dividends and non-dividend distribution in the added section by changing the TYPE to return of capital.

If you have both a return of capital, and Section 1250 gains, you can always click the ADD ANOTHER TYPE link again.

Save the transaction.

Now you will have received cash equal to the original dividend entry. The original amount will be split between dividend and return of capital.

In the example below, FTNT originally had a 100 dividend. That dividend was reclassified at the end of the year, to make 20.00 a non-dividend distribution, and 30.00 a Section 1250 unrecaptured capital gain.

Keep in mind that these changes should be made before running your year-end allocation. If you have already completed an allocation, and then make these changes, the allocation must be re-done, in order for the changes to be reflected. For steps on how to do this, please see FAQ 45 at: https://www.iclub.com/faq/Home/Article?id=45 , or the webinar version, at https://www.iclub.com/faq/Home/Article?id=445.


To be classified as a dividend a company must have sufficient current and retained earnings to pay the dividend. If not, any portion not covered by current and retained earnings is a return of capital to those receiving the distribution. Brokers often show these as return of capital distributions as ‘non-dividend distributions’ on their 1099. The tax treatment of dividends and return of capital are different. As in the previous instructions, the steps below can be adjusted if your club received anything listed as a Section 1250 Gain.

 

Handing a reinvested dividend being reclassified, using myICLUB.com:

Delete the original reinvested dividend entry

Treat the distribution as a cash distribution and use the cash distribution entry screen. In the online program, myiclub.com, there is now the ability to split the cash distribution into multiple types. There is a link with a title that includes ADD ANOTHER DISTRIBUTION TYPE. These non-dividend distributions are entered as return of capital distributions in the program.

Now you will have received cash equal to the original dividend entry. The original amount will be split between dividend and return of capital.

Now enter a buy transaction for the original number of share received in the reinvested dividend. The total cost of the buy will be the original dividend amount. The source of funds will be whatever account was used to receive the cash distribution mentioned above.

This method will give you only 1 block purchased for each reinvested distribution.

Keep in mind that these changes should be made before running your year-end allocation. If you have already completed an allocation, and then make these changes, the allocation must be re-done, in order for the changes to be reflected. For steps on how to do this, please see FAQ 45 at: https://www.iclub.com/faq/Home/Article?id=45 , or the webinar version, at https://www.iclub.com/faq/Home/Article?id=445.